You Are Comparing Two Financial Policies

question 6

Multiple Choice

You are comparing two financial policies.The first is all equity.The second involves the use of $2 million of debt.The break-even point between these two policies occurs when the earnings before interest and taxes (EBIT) is $450 000.Given this,it is accurate to say that leverage _____ beneficial to the firm when EBIT is $325 000 and _____ beneficial when EBIT is $625 000.

• A)is not;is
• B)is not;is not
• C)is;is not
• D)The answer cannot be determined based on the information provided.
• E)is;is

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Definitions:

Migration

The movement of people or animals from one region or habitat to another, often seasonally or periodically.

Hierarchical System

A hierarchical system is an organized structure in which elements are ranked or classified based on levels of importance or authority, often depicted in a pyramid shape where each layer controls the one below.

Chain of Command

The chain of command is a hierarchical structure within an organization that outlines the authority and responsibility relationships amongst its members, ensuring clear lines of communication and decision-making.

Distributed System

A system in which computer processing is done across multiple separate machines, connected by a network, allowing for more efficient processing and data handling.